Illicit International Trade and Finance: A Growing Concern
The Problem of Inconsistent Definitions
A recent report highlights the lack of a clear definition of illicit financial flows (IFFs), which hinders efforts to combat this complex issue. The absence of a standardized definition has led to inconsistent estimates and conflicting views on the scope of IFFs in various regions.
Impact on Research, Analysis, and Policy-Making
The problem is not just academic; it has significant implications for research, analysis, and policy-making. The lack of clarity has resulted in different stakeholders having varying understandings of IFFs, leading to contradictory estimates and challenges during interviews.
UN Definition of Illicit Financial Flows
To address this issue, the report adopts the United Nations’ definition of IFFs as “money that is illegally earned, transferred or used and that crosses borders” primarily generated from criminal activity, corruption, and tax fraud.
Components and Channels of Illicit Financial Flows
The report identifies three components of IFFs:
- Corruption-related money laundering
- Offshore wealth holdings
- Real estate businesses
The channels through which IFFs occur include:
- Cash transfers
- Capital account channels
- Trade mis-invoicing
Complexity of Illicit Financial Flows
Researchers conducted over 60 semi-structured interviews with experts in the field, including bank officials, law-enforcement personnel, financial intelligence unit members, prosecutors, and civil society representatives. The interviews highlighted the complex nature of IFFs, with multiple points where they can be measured, increasing the risk of double-counting.
Political-Economy Analysis
The report emphasizes that the numbers alone do not reveal the full extent of the problem. Instead, it provides a political-economy analysis of key drivers and trends that enable IFFs in the Western Balkans, offering a richer understanding of the phenomenon.
Susceptibility to Illicit Financial Flows
The region’s susceptibility to IFFs is attributed to its economic structure, particularly the level of informality, which facilitates illicit flows. The interconnectedness of Albania, Kosovo, and North Macedonia makes it challenging to identify and implement national solutions.
Strategic Geographic Location
The report notes that the strategic geographic location of the Western Balkans, as a bridge between Asia and Western Europe, has intensified trade flows, benefiting both legal and illegal commerce. The region’s criminal economy thrives in the underbelly of the licit economy, with organized crime flourishing due to increased global trade and globalization.
Conclusion
The report concludes that IFFs are a significant concern in the Western Balkans, requiring a comprehensive approach to combat this complex issue.